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Tax Court Holds that Evidence of Internet Postage Purchase Constitutes Private Postmark for Timely Mailing Purposes

Posted on Dec. 12, 2017

We welcome back frequent guest blogger Carl Smith who discusses another case dealing with the jurisdiction of the Tax Court. Here, the taxpayer’s issue concerns the postage which was purchased over the internet. Keith

In Pearson v. Commissioner, 149 T.C. No. 20 (Nov. 29, 2017), the Tax Court, sitting en banc, abandoned the holdings in its memorandum opinion in Tilden v. Commissioner, T.C. Memo. 2015-188, and adopted the holdings of the Seventh Circuit in Tilden v. Commissioner, 846 F.3d 882 (7th Cir. 2017), that (1) postage bought over the internet that is affixed to an envelope creates a private postmark as of the date of purchase for purposes of the regulations under the timely-mailing-is-timely-filing provisions of section 7502 and (2) internal tracking data of the USPS is not treated as a USPS postmark for purposes of those regulations. Applying those holdings to the facts of Pearson (which were virtually identical to Tilden – even involving the same law firm), the Tax Court found that it had jurisdiction.

Pearson frees up the Tax Court to issue similar rulings in a number of cases where the Tax Court had stayed proceedings in anticipation of both the Seventh Circuit’s ruling in Tilden and the Tax Court’s response in Pearson. Indeed, on the same day that Pearson was issued, the Tax Court issued a similar jurisdictional ruling in Baham v. Commissioner, T.C. Summary Op. 2017-85 – a case also involving internet-purchased postage.

I have blogged five previous times on the Tilden case as it winded its way through the courts (see here, here, here, here, and here), so I will try to keep repetition in this post to a minimum.

Pearson Facts

To understand how the Pearson holdings occurred and were applied, I will summarize the facts (noting the trivial differences between Pearson and Tilden) and the relevant regulation provisions.

Pearson is a deficiency case where, on the 89th day after the notice was issued, an employee at a lawyer’s office in Salt Lake City (the same office as in Tilden) went to the internet website of stamps.com and purchased a stamp for the appropriate postage amount. (In Tilden, the stamps.com postage was purchased and the envelope was mailed on the 90th day.) After printing out the stamp, the employee affixed it to an envelope addressed to the Tax Court. The stamp had printed on it the date of purchase. The employee then filled out a certified mail receipt form (the white slip) and also attached it to the envelope. On the white slip, where there is space for the USPS to stamp a postmark, the employee wrote in by hand the date the stamp was purchased. Then, the employee walked the envelope over to the Post Office and mailed it, without getting a stamp from the USPS on the envelope or on the receipt. The employee kept the receipt.

The USPS never placed its own postmark on the envelope during its long journey to the Tax Court, but internal USPS tracking data showed the envelope first in the USPS system on the 91st day. (In Tilden, the tracking data indicated the 92nd day.) The tracking data for the initial entry was from a different Salt Lake City postal facility from the site of mailing, however.

On the 97th day, the envelope arrived at the Tax Court in Washington, D.C. – presumably after the now-common delay to irradiate the envelope to kill possible anthrax. (In Tilden, the envelope arrived on day 98.) The IRS concedes that if an envelope were mailed from Salt Lake City to the Tax Court on the 90th day, it would ordinarily be received in a range of days that included the 8th day after mailing.

Potentially Relevant Regulations

Section 7502(b) states: “This section shall apply in the case of postmarks made other than the United States Postal Service only if and to the extent provided by regulations prescribed by the Secretary.”

Two regulations could have applied to determine whether the filing was timely.

A regulation involving a situation where there is a private postmark, but not a USPS postmark, Reg. section 301.7502-1(c)(1)(iii)(B)(1), reads:

(B) Postmark made by other than U.S. Postal Service.–(1) In general.–If the postmark on the envelope is made other than by the U.S. Postal Service–

(i) The postmark so made must bear a legible date on or before the last date, or the last day of the period, prescribed for filing the document or making the payment; and

(ii) The document or payment must be received by the agency, officer, or office with which it is required to be filed not later than the time when a document or payment contained in an envelope that is properly addressed, mailed, and sent by the same class of mail would ordinarily be received if it were postmarked at the same point of origin by the U.S. Postal Service on the last date, or the last day of the period, prescribed for filing the document or mailing the payment.

A regulation involving a situation where there is a USPS postmark and a private postmark, Reg. section 301.7502-1(c)(1)(iii)(B)(3), reads, in part:

(3) U.S. and non-U.S. postmarks.–If the envelope has a postmark made by the U.S. Postal Service in addition to a postmark not so made, the postmark that was not made by the U.S. Postal Service is disregarded . . . .

Tilden Tax Court Holding

On these virtually identical facts in Tilden, the Tax Court had held that it lacked jurisdiction because the petition was untimely filed. In the opinion, the Tax Court always referred to the stamps.com date stamp on the postage as a “postmark” – using quotes around postmark to apparently indicate that the court was dubious about calling a mere internet stamp purchase date a true postmark. However, even if it were a true private postmark, then the court held that USPS tracking data constitutes a USPS postmark, so that the second regulation quoted above governs and makes the USPS postmark determinative. The judge relied on the Tax Court’s earlier opinion in Boultbee v. Commissioner, T.C. Memo. 2011-11, where it had held that timely USPS tracking information could be used by a party as a timely USPS postmark in the case of an envelope lacking a true USPS postmark. (In Boultbee, the envelope was mailed from Canada through its own postal system and never got a USPS postmark after it crossed the border.)

Tilden Seventh Circuit Holding

The Seventh Circuit overruled the Tax Court in Tilden, noting that the initial USPS tracking information could occur at a time long after true mailing, so was not reliable evidence of the date of mailing. Thus, the Seventh Circuit refused to treat the tracking information as a USPS postmark. By contrast, the Seventh Circuit held that the date stamp on the stamps.com postage affixed to the envelope constituted a private postmark for purposes of the first regulation quoted above. The court noted that, while it is true that there is no guarantee that the date of purchase is also the date that the envelope was mailed, that is also true in the situation (addressed by the regulations) where postage meters (such as by Pitney-Bowes) affix private postmarks with dates that can be manipulated by parties. Thus, since the envelope with this timely private postmark arrived within the ordinary period that a letter mailed from Salt Lake City on the 90th day would arrive, the petition was timely filed.

Pearson Holding

The Tax Court in Pearson completely accepted the Seventh Circuit’s analysis in its Tilden opinion, even though the Pearson case would be appealable to the Eighth Circuit. This now creates a nationwide rule that internet-purchased postage is a private postmark for purposes of the regulations and that USPS tracking data does not create a USPS postmark.

The Pearson majority opinion and the joint dissent of Judges Gustafson and Morrison sparred over the definition of “postmark” in the regulations – with the majority looking to a dictionary definition. The dissent did not think this envelope contained a private postmark. There are interesting discussions in both opinions of the origins of section 7502(b) – originally titled “Stamp Machine”, but now titled “Postmarks” – and the history of Pitney-Bowes-type machines. The majority wrote: “[A] Stamps.com postage label is the modern equivalent of the output of an old-fashioned postage meter. We find no plausible basis for making a legally significant distinction between these two means of affixing postage.”

The majority also gave Auer deference to the IRS’ current interpretation of the word “postmark” in its regulations to include dates shown on internet-purchased postage. (See Auer v. Robbins, 519 U.S. 452, 461 (1997).) The dissent did not think Auer deference should be accorded and pointed out the shaky continuing existence of the Auer deference line of cases in the Supreme Court.

Baham

Baham, issued the same date as Pearson, is a case where Judge Wherry, on his own, investigated the USPS tracking information and took judicial notice of it. In Baham, the envelope contained a petition that was signed on the 89th day and that was mailed to the Tax Court from “The UPS Store” in Acadia, California. The envelope bore a shipping label purchased from Endicia.com on the 90th day. The taxpayer also introduced a receipt from The UPS Store for mailing at 2:44 pm on the 90th day, but, of course, that evidence is not itself a postmark. Other evidence was later introduced that The UPS Store typically brought its mail over to the USPS at 5 pm on the date the mail was received. The envelope was sent by certified mail, but never acquired a USPS postmark. USPS certified mail tracking information showed the envelope first in the USPS system at 8:03 am on the 91st day. Judge Wherry held that the petition was mailed on the 90th day and so was timely.

Observations

Since the IRS agrees with the Tax Court in Pearson, it is doubtful that any party (the IRS or the taxpayer) will ever argue in the courts of appeals that a petition was late under facts similar to Pearson, Tilden, or Baham. Thus, I expect no further appellate court opinions on this issue.

However, given the widespread use of internet-purchased postage, I think it long overdue that the IRS update the regulations under section 7502 to bring them into the 21st Century. There should be no need for people to ever wonder about whether internet postage or USPS tracking information constitutes a postmark.

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